Uganda’s government plans to introduce a 0.5% tax on all cash withdrawals transacted on various channels including ATM, agency banking and over-the-counter transactions.

Authorities say the move is intended to encourage cashless transactions, promote e-commerce and improve tax compliance, as well as to increase revenue collection.

According to Patrick Ocailap, the deputy secretary to the Treasury in the Ministry of Finance, the proposed tax is premised on the need to level the playing field by taxing banks the same way that mobile money transactions are taxed.

Currently, Ugandans are charged 0.5% tax on all mobile money withdraw transactions which the government introduced in 2018 in addition to 15% excise duty paid by mobile money subscribers through mobile money charges.

However, banks are only charged 15% by the Uganda Revenue Authority (URA).

“Currently, mobile money withdraws are subject to 0.5% excise duty but on the counter, agency banking and ATM withdraws in commercial banks are not subjected to the same tax. And so we need to level the playing field by also charging banks the 0.5% tax on all cash withdraws,” Ocailap said.

Stakeholders in the banking industry are opposed to the tax and argue it will be counterproductive and increase the cost of financial and payment services for Ugandans.

They have warned that a levy on withdrawals will discourage people from making deposits, while those who get paid in the banks might turn to withdrawing all their cash and keep it with them.

Dr. Adam Mugume, the executive director, research at the Bank of Uganda, was quoted by the local Daily Monitor newspaper as saying, “I believe taxing cash withdraws would be detrimental to the economy as it could impact on the growth of deposits in the banking system. In other words, it would encourage individuals saving in pots or under mattresses to avoid taxation.”